The controller ▼ is is not correct in his justification with respect to classifying costs as product or period costs; this determination is made by ▼ Generally Accepted Accounting Principles (GAAP) plant controllers. Research and development, as well as all costs related to warehousing and distribution of goods, should be classified as ▼ period costs, product costs, and be ▼ expensed as incurred reflected as an asset in the balance sheet.

Under GAAP, every cost incurred should be classified into either period cost or product cost, where:

Product Cost:

The cost business has incurred right now, but will benefit from it in future for e. g. raw materials used to manufacture something which will be sold in next period (by the way period means the time span for which business is reporting its performance like year or quarter). these generally include direct labor, materials and manufacturing over heads

these costs should be capitalized and expensed out in future as the inventory is used.

Period Cost:

all other costs from which business has benefited completely in current period, including admin sales and distribution related costs

these should be expensed out in current period.

for warehousing costs, if they pertain to raw materials and semi finished goods they will be capitalized but if they pertains to finished goods they will be expensed out (as there is no benefit expected from them in future now)

for research and development, every research cost should be expensed out for e. g. feasibility studies under GAAP, but if product found to be commercially viable then the development costs can be capitalized as intangible asset (with the same logic as these will be exactly like manufacturing costs for tangible products).